Many chief financial officers (CFOs) responsible for defined benefit (DB) schemes are in the dark about the future financial implications of environmental, social and governance (ESG) issues on their businesses and pension scheme, research from Cardano has found.

The analysis found that, despite the growing importance of ESG issues for companies, the average CFO only has a moderately clear view of the future financial implications of the most material ESG issues on their company, including existing climate change commitments.

On a scale of one to five, where one represents ‘a strong view’ and five represents ‘no view’, CFOs rated their clarity at 2.56.

The research found that CFOs are also uncertain about their preparations for managing incoming climate related regulatory requirements, as only CFOs with large pension schemes rated their preparations above moderate (2.24), while the average CFO with a small scheme was under-prepared (3.66).

The findings also revealed wider misalignment between DB schemes and their corporate sponsors over ESG commitments, with just under two fifths (37 per cent) of CFOs and senior executives agreeing that their corporate strategy and pension scheme ESG agendas are aligned, including just 15 per cent who feel there is close alignment.

Instead, nearly two thirds (62 per cent) of CFOs said that their pension schemes have ESG agendas that are significantly different from their corporate strategy.

This was particularly true amongst CFOs with small schemes, as 80 per cent of CFOs with schemes up to £100m of assets under management said their corporate ESG strategy and pension scheme ESG agenda are significantly different, compared to 46 per cent of CFOs with larger schemes of over £1bn.

Indeed, the report showed that larger DB schemes have the strongest ESG alignment with their corporate sponsor, with 21 per cent of CFOs stating that alignment is ‘close’ and 33 per cent reporting it is ‘moderate’.

Almost two in five CFOs (39 per cent) responsible for large schemes are working with scheme trustees to align their ESG and corporate strategies.

In contrast, more than half (51 per cent) of smaller scheme CFOs said that addressing significant differences in ESG strategy is not a corporate priority, while one in five (20 per cent) CFOs responsible for mid-sized schemes feel the same.

Commenting on the findings, Cardano UK managing director and head of ESG advisory, Michael Bushnell, stated: “With many CFOs lacking clarity and therefore feeling unprepared to make meaningful progress on their ESG priorities, businesses must find new ways to develop a strategy that meets increasing regulatory requirements while maximising opportunities.

“While some businesses are taking steps to move forward, no-one can be comfortable with a situation where so many businesses are apparently in the dark about the financial implications of material ESG factors.

“Despite growing discourse around ESG risks, the fact that corporate agendas and their DB pension schemes’ ESG priorities are at odds with one another risks creating a zero-sum game where business and schemes are pulling in opposite directions.

“This lack of alignment represents a material risk for CFOs, with potential for either party to undermine good intentions and progress if external stakeholders find sponsors and trustees are out of step or even contradicting each other.”

However, despite the division on ESG considerations, the research found that there is a clear consensus on the importance of accountability for equality, diversity, and inclusion (EDI) issues.

Indeed, the majority (80 per cent) of CFOs agreed that pension scheme trustee boards should be held to the same level of accountability as corporate boards, with fewer than 5 per cent opposing this view.

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